Bank of Korea ready to adjust tightening pace, hopes for peak rate near 3.5%

December 01, 2022 10:36 AM AEDT | By Reuters
Follow us on Google News:
Image source: Reuters


By Cynthia Kim

SEOUL (Reuters) -South Korea's central bank is ready to adjust its pace of policy tightening to achieve a soft landing in real estate and hopes the peak of its target rate in this cycle will be around 3.5%, its governor said at the Reuters NEXT conference on Wednesday.

Governor Rhee Chang-yong declined to say whether the Bank of Korea (BOK) could begin easing policy before the U.S. Federal Reserve did so. But he added that South Korean interest rates should not get too far below those of the United States, because of the risk of capital outflow.

"Together with growth slowdown, our board will recalibrate the pace of the monetary policy tightening and then we will try to achieve soft landing of the housing prices," Rhee said in an interview. 

The BOK, which in August 2021 became one of the first major-economy central banks to begin raising interest rates, has lifted its benchmark short-term rate by a total of 275 basis points from a record low figure of 0.5%.

With the policy rate now at 3.25%, Rhee hopes it will not have to go much higher.

"So there are a lot of uncertainties, but if things go as expected we hope that we can probably - (the) terminal rate can be around 3.5%."

It is the first time that the central bank governor has specified a level around which he hopes rates will peak.

South Korean policymakers worry that their household sector is among the world's most indebted and is all the more susceptible to interest rate rises because of the prevalence of variable mortgage rates. Real estate prices are already falling.

Rhee stressed that domestic conditions, especially inflation and growth, remained the central bank board's priority in deciding the pace of interest rate rises, but he added that it "will definitely look at the impact from the U.S. Fed policy on our external sector."

"In some sense too wide (of a) gap between our rate and U.S. rate may not be desirable." The Fed's policy rate is currently 3.75% to 4.00%.

One of the biggest opportunities for South Korea's economy next year could come from eventual reopening of China from pandemic restrictions, Rhee said.

"Actually if China loosens zero-COVID policy and reopens their borders and economy that will be a tremendous stimulus for us. I hope that it can happen soon."

To view the Reuters NEXT conference live on Nov. 30 and Dec. 1, please click here.

(Reporting by Cynthia Kim, Choonsik Yoo and Jihoon Lee; Editing by Clarence Fernandez and Bradley Perrett)


Disclaimer

The above content is directly sourced from Reuters under a contractual arrangement. The content is being provided as a convenience and for informational purposes only; and does not constitute an endorsement or approval by Kalkine Media of any of the products, services, or opinions of the organization or individual. The user is apprised that Kalkine Media bears no responsibility for the accuracy, legality, or content of Reuters, any external sites, or for that of subsequent links. The user is requested to contact Reuters directly for answers to questions regarding the content. Please note that Kalkine Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.



Top ASX Listed Companies

We use cookies to ensure that we give you the best experience on our website. If you continue to use this site we will assume that you are happy with it. OK